Parth Chawla, UC Davis

Do returns to human capital rise during crises? This paper examines whether Indonesia's INPRES school construction program in the 1970s improved firm resilience during the 1997 Asian Financial Crisis. I combine a difference-in-differences strategy with a shift-share instrument, exploiting variation in district INPRES intensity and the national share of treated working-age cohorts. I find that each additional school per 1,000 children raised post-crisis real labor productivity and output by 2.8 and 3.5 percent, respectively. These effects are not explained by pre-crisis differences in basic educational attainment. Instead, INPRES contributed to a pre-crisis shift of workers toward skill-intensive production work. Using reduced-form evidence and a simple model, I show that the resulting local abundance of skilled production workers helped keep their wages lower in high-INPRES districts, enabling plants to retain more skilled workers during the crisis.